Local retail flows bullish for India near-term: UBS

Retail flows into Indian equity market look bullish in the near term and indicate that the recent market strength may continue despite the expected sharp earnings decline ahead, says an UBS report.

The global brokerage firm believes that the flows could drive markets up in the near-term but has retained the year end Nifty target at 8,800.

In its upside scenario, UBS expects Nifty to touch 9,700 as long as there are no global macro shocks; declines in global risk appetite; immediate local "negative catalysts" such as UP elections and fourth quarter of 2016-17 earnings, which is expected to disappoint.

Nifty is currently hovering at 8,891.

Authored by Gautam Chhaochharia, Head of India Research and Sanjena Dadawala, Analyst, the UBS report said: "In our discussions with investors, they saw inflows into local Indian equity mutual funds as a reason to be bullish, especially as these have offset selling by foreigners in late 2016, and there are hopes that this is a structural trend." Moreover, a historical comparison of inflows into mutual funds (as a share of India's mcap) vs the Nifty's year-on-year movement suggests the pace of flows may be running ahead of market returns, the report said.

"Local retail inflows chase historical market returns and may not be just a reflection of weak returns on other asset classes," it added.

Meanwhile, Recent data indicates the monthly amount collected via SIP systematic investment plans may now be USD 0.6 billion.